Many investment analysts and traders design trading strategies and make decisions based on technical analysis. They believe that publicly available technical data of an investment—such as the historical open, high, low, close prices, daily volumes, the last trade price and size, real-time bid/ask prices and bid/ask sizes—contain a certain amount of information that can be used to some extent to predict the future price movements of the investment and that, therefore, analyzing this data can help them make profits.
Over the course of the past 50 years, investment analysts have developed a group of indicators based on the market data of investments. For example, moving averages (MA), relative strength indexes (RSI), K/D stochastic analysis, moving average convergence and divergence (MACD), Bollinger bands, and various indexes are among the most popular indicators the general public uses to describe individual investments as well as the market as a whole. For the purpose of analyzing investments and designing trading strategies, traders and analysts plot investment prices, volumes and other indictors in a graph and call it an investment chart. Most people find these investment charts very useful. Technical analysis is all about constructing investment charts and analyzing them to draw conclusions about an investment: when to buy it and when to sell it.
Technical analysts and traders believe that certain investment chart shapes and patterns hint buy and sell opportunities. Many professional and amateur traders claim that they consistently made trading profits by following those buy and sell signals.
Nowadays computers can conveniently draw investment charts with volumes and various other indicators. The most popular device is the trade station. A typical trade station stores investment data in a local database and receives the real-time investment prices and volumes from a data vendor by means of a telephone line, a designated data line or a satellite dish. The user of a trade station can create various types of live (real-time) investment charts on the screen, and draw different types of lines or curves on the chart to help analyze the investment.
The average trader sits at the screen of a trade station during trading hours, listens to the financial news, investigates all possible investment symbols he/she can think of, and examines all the investment charts on the screen. Occasionally he/she finds an investment that shows a typical buy or sell pattern. Then he/she researches other available information about the investment before finally deciding to buy, sell or short the investment. Later on, if the investment moves against him/her, indicating that his/her original analysis is no longer valid, he/she unwinds the trade to cut loss. If the investment moves as he/she had expected, he/she raises the stop level to protect the profits.
The key to technical trading is to find those typical buy or sell patterns from the market. Some traders work very hard looking for good trading signals. Besides constantly screening through the investments during trading hours, they examine hundreds or even thousands of investments every day after hours, looking for candidates that may develop into certain patterns in the next trading day. Because good signals are rare, it is difficult for traders to find them when they are still valid. For this reason, traders sometimes cut corners. Under the pressure to trade, they may have to accept less-than-perfect patterns and execute trades. Or if they finally find a perfect pattern, they tend to put on more capital in a single trade than they should for optimal risk management. Of course, the better alternative is to diversify the trading capital into a few very good trades, provided that they can be found.
Some conventional trade stations allow users to search for investments that meet certain criteria, such as conditions on the price, volume and other indicators. However, these tools require that the users input their own search criteria. This is disadvantageous because most users do not know what criteria will lead to good trading signals. Furthermore, because these search tools are so simplistic, no matter what search criteria a user inputs the search often results in information of little use. Moreover, the trade stations and other software available in today's market do not offer users the ability to search for investment chart patterns.
What is desired, therefore, is an automated system for assisting investors in deciding whether to buy or sell investments which automatically analyzes investments to determine if buy or sell indicators are present, which is capable of automatically analyzing a large number of investments without requiring user input, which is capable of quickly identifying buy or sell indicators so that they can be acted upon while they are still valid, which automatically analyzes investment charts to draw conclusions about investments, which is capable of identifying a variety of pertinent investment chart patterns indicative of buy or sell indicators, and which is capable of detecting subtle investment chart patterns which may otherwise be missed by an individual manually examining investment charts.